Which describes a self-insured workers' compensation plan?

• A. The state pays the workers' compensation payments
• B. The employer funds the workers' compensation payments
• C. The wages will continue as if the employee is still working
• D. The individual employee is responsible for his own insurance

Answer: (B)

Self-insured workers' compensation is when the employer bears the actual cost of benefits out of its own funds instead of paying premiums to a state fund or private insurer. The employer must be financially capable, often obtaining regulatory approval to self-insure and typically using a claims administrator or third-party support to handle processing and payouts. Because the employer funds the benefits directly as claims arise, they assume the financial risk rather than transferring it to an insurance carrier or the state.

This arrangement is distinct from scenarios where the state covers payments or the employee pays for coverage, and it’s not about continuing full wages while the employee is off work. Workers’ comp generally provides wage replacement at a portion of earnings, not full salary, and any ongoing full-wage continuation would come from separate paid-leave policies rather than the self-insured plan itself. In practice, many large employers choose self-insurance to maintain control over claims and costs, sometimes adding stop-loss protection to limit large losses.